It seems the stock market has recently gotten everything it wanted in QE2, no expiration of tax cuts, additional stimulus and strong earnings reports. Still the S&P 500 is about where it was in April and has made no progress in over a month. Although the market can still break to the upside, the move off the March 2009 bottom has discounted a lot of good news while ignoring all the real pitfalls that may be ahead.
We here at Brotelli Investments believe a significant market top is ahead and should occur sometime before the end of the 1st quarter of 2011. This should bring a correction which will tell us a lot on what is to come the rest of the new year.
We see the biggest risks to the market as: a U.S. housing douple dip, a slowdown in China, and the spreading of sovereign debt fears to Spain and others in Europe. In addition the market is substantially overvalued at 18 times smoothed trendline S&P 500 earnings. Overall, at this point we believe the downside risks far outweigh the potential upside rewards.
Finally, we want to wish you a very Happy Holiday season and a wonderful 2011!
Sunday, December 12, 2010
Monday, December 6, 2010
White House Proposes Payroll-Tax Holiday
See the link below from the Wall Street Journal:
http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEADNewsCollection
“Aides to President Barack Obama are proposing a one-year reduction in the payroll tax as part of negotiations with Congress on a broader package to stave off income-tax increases due to take effect next year.
Under the White House plan, the Social Security tax paid by workers would drop temporarily by 2 percentage points, to 4.2% from 6.2%, a person familiar with the proposal said. For a worker earning $40,000, the tax savings would be $800.
The proposal has not won the approval of congressional Democrats or Republicans. Its emergence in the broader tax negotiations is a sign that the White House is trying to break the logjam on those talks before the end of the year, when tax cuts signed into law by former President George W. Bush are due to expire.
White House officials proposed the cut as a way to stimulate the economy, said the person familiar with the talks. The proposal would take the place of an earlier White House push to extend Mr. Obama’s signature Making Work Pay tax cut, which reduced income taxes for middle-income individuals by $400 a year.”
We at Brotelli Investments see this as a step in the right direction to a sustained economic recovery. We’ll have to see what the final concessions are and whether this even has a chance of passing, but it has the potential to be a BIG net positive for the economy. The Republicans would have to essentially concede to what is basically a fresh Obama STIMULUS plan. How likely is that? If the economy is strong in 2012 due to the impact of further tax cuts it would be a huge centrist victory for the President and make a Republican run for the White House that much more difficult. Expect a battle here!
http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEADNewsCollection
“Aides to President Barack Obama are proposing a one-year reduction in the payroll tax as part of negotiations with Congress on a broader package to stave off income-tax increases due to take effect next year.
Under the White House plan, the Social Security tax paid by workers would drop temporarily by 2 percentage points, to 4.2% from 6.2%, a person familiar with the proposal said. For a worker earning $40,000, the tax savings would be $800.
The proposal has not won the approval of congressional Democrats or Republicans. Its emergence in the broader tax negotiations is a sign that the White House is trying to break the logjam on those talks before the end of the year, when tax cuts signed into law by former President George W. Bush are due to expire.
White House officials proposed the cut as a way to stimulate the economy, said the person familiar with the talks. The proposal would take the place of an earlier White House push to extend Mr. Obama’s signature Making Work Pay tax cut, which reduced income taxes for middle-income individuals by $400 a year.”
We at Brotelli Investments see this as a step in the right direction to a sustained economic recovery. We’ll have to see what the final concessions are and whether this even has a chance of passing, but it has the potential to be a BIG net positive for the economy. The Republicans would have to essentially concede to what is basically a fresh Obama STIMULUS plan. How likely is that? If the economy is strong in 2012 due to the impact of further tax cuts it would be a huge centrist victory for the President and make a Republican run for the White House that much more difficult. Expect a battle here!
Tuesday, November 30, 2010
The Holiday Season and the MARKET!
Happy Holidays everyone!
Another LOOK at Housing
Demand
Supply
Price
I found the three charts above to be VERY interesting. With supply near its all-time highs and demand near its all-time lows it’s safe to assume that prices have only one direction to move and that’s lower. We will be watching the housing index ($HGX) closely heading into early next year as a dip in the index to new yearly lows would almost surely lead to another recession in the US economy. 2011 here we come...
Monday, November 22, 2010
Thinking of INFLATION...
I found the chart below to be very interesting. If the US follows the path of Japan it looks as if inflation will be very low for a long time. I think it will depend on the housing market and if we double dip next year.
Only time will tell.
Only time will tell.
Thursday, November 18, 2010
Stress Tests: Round 2
See the link below for more information from the Wall Street Journal on the Fed's new round of stress testing for the banks.
http://online.wsj.com/article/SB10001424052748704648604575620732161392908.html?mod=WSJ_hp_LEFTTopStories
The main part of the article I read was:
“The Federal Reserve will require all 19 banks that underwent stress tests during the height of the financial crisis to undergo another review of their capital and their ability to absorb losses under an “adverse” economic scenario.
The Fed, in guidance issued today, said all 19 banks must submit capital plans by early next year showing their ability to absorb losses under a set of conditions to be determined by the central bank.
The request is part of the Fed’s effort to step up supervision at the nation’s largest financial firms.”
To me, the Fed is clearly seeing something that Wall Street does not. I think they know the housing market is now rolling over again. Ben Bernanke has implemented QE2 in case he needs to buy some mortgage backed securties to shore up the credit markets. He wants to avoid a repeat of Q4 2008.
That’s a good thing if you ask me.
http://online.wsj.com/article/SB10001424052748704648604575620732161392908.html?mod=WSJ_hp_LEFTTopStories
The main part of the article I read was:
“The Federal Reserve will require all 19 banks that underwent stress tests during the height of the financial crisis to undergo another review of their capital and their ability to absorb losses under an “adverse” economic scenario.
The Fed, in guidance issued today, said all 19 banks must submit capital plans by early next year showing their ability to absorb losses under a set of conditions to be determined by the central bank.
The request is part of the Fed’s effort to step up supervision at the nation’s largest financial firms.”
To me, the Fed is clearly seeing something that Wall Street does not. I think they know the housing market is now rolling over again. Ben Bernanke has implemented QE2 in case he needs to buy some mortgage backed securties to shore up the credit markets. He wants to avoid a repeat of Q4 2008.
That’s a good thing if you ask me.
Monday, November 15, 2010
LOOKING for a TOP!
Here we are in the middle of November and the equity markets are still hanging in overbought territory at just over 1200 on the S&P. We at Brotelli Investments continue to wait for confirmation of a top. We feel a strong break of 1200 will mean a correction has begun. Until then, we are watching the US Dollar index ($usd) to see if a bottom can form along with the commidity index ($crb) to see if a top is complete. Finally, we will be closely watching the housing index after the weak data we posted last week.
Until we see evidence of a top as stated above, the market will continue to rise as the bulls are in control.
Until we see evidence of a top as stated above, the market will continue to rise as the bulls are in control.
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